Fitch Completes U.S. Tobacco ABS Portfolio Review

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has completed its annual review of tobacco ABS ratings
accounting for the amount of Master Settlement Agreement (MSA) payment
received by each trust in 2014.

In 2014, the aggregate MSA payment was 18.46% lower than the amount in
2013. This drop is due to the one-time settlement payment received by 20
settling states and territories from the tobacco companies in 2013
regarding the Non-Participating Manufacturer dispute. This decline was
partially offset by a settlement of 2003 disputed payments made to the
remaining states. In both cases, this one-time settlement payment was
stripped out of the MSA payment amount allocated to each trust for
Fitch's modeling purposes. Instead, Fitch assumed that the settling
states experienced the same rate of decline as the non-settling states.
Since this settlement payment is cash positive, no downgrades will be
taken on any bonds issued by settling states or counties which is
consistent with the approach taken in 2013.

The full benefit of the settlement payment will be seen next year at
which point the ratings will be reevaluated.

There are 38 downgrades taken on bonds from non-settling states.
Although the MSA payment was stable year-over-year, many of these
downgrades result from having model indicated grades which were below
the current rating for two consecutive years. One upgrade is being made
on California County Tobacco Securitization Agency (Los Angeles County)
Series 2006, which received a settlement in 2013. The remaining 179
outstanding ratings are being affirmed.

Buckeye Tobacco Settlement Financing Authority, 2007 (Ohio), Nassau
County Tobacco Settlement Corporation, Tobacco Settlement Asset-Backed
Bonds, Series 2006 continue to have debt service reserve balances below
their required levels. Suffolk Tobacco Asset Securitization Corporation,
Tobacco Settlement Asset-Backed Bonds, Series 2008 is drawing on its
reserve account for the first time. As a result, Fitch does not give
them the benefit of a rating one notch above the model indicated grade
regardless of whether the state received a settlement. Golden State
Tobacco Securitization Corporation, United States, Series 2007-1 had
been drawing on its reserve account in the past, but now is at its
required level.

Fitch uses its breakeven model to analyze tobacco performance. The
breakeven model assesses how much the MSA payment received by the trust
could decline for each bond to pay at the legal final maturity date. The
amount of the latest MSA payment that the transaction has received, the
capital structure, the reserve account, and the bond's legal final dates
are the key inputs to the model.

Since the tenor of these transactions is typically long and the cash
flows can be unpredictable, qualitative adjustments may be taken to
avoid rating volatility by requiring two years of consecutive model
outputs in order to downgrade to the model implied output. However, if
more than one notch difference exists between the current rating and the
model implied rating, the bond will be downgraded to one notch above the
model output. Tobacco ratings are capped at 'BBB+sf', based on Fitch's
opinion of the strength of the tobacco industry. All bonds with model
outputs 'bbb+' and below have a Negative Outlook to address concern over
a future deterioration in cash flows.

See the web file titled 'Fitch Completes U.S. Tobacco Portfolio Review'
for a full list of breakeven multiples.

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